Forbearance Exit Plans
For many, the Covid-19 pandemic resulted in serious hardships. As the virus spread the need for strenuous lockdowns became apparent, which ended up resulting in whole industries being shut down. In turn, many lost their jobs and ended up falling behind on their bills, which includes rent payments and mortgage payments. Millions of homeowners had to go into forbearance programs on their mortgages because they were not able to make their monthly payments. Fortunately, many Americans are now back to work and the number of homeowners whose mortgages are in forbearance has declined significantly from pandemic peaks. As of now, the number of homeowners in a forbearance program is about 1.6 million. Most of these forbearances will expire in the near future, which will require the homeowners to go into an exit plan. What are forbearance exit plans and what options do homeowners have?
Forbearance Timeframes and Big Choices
As part of the Covid relief packages passed by the federal government, homeowners were given extensions on how long their mortgage can be in forbearance. These extensions are set to expire in the near future and about 850,000 homeowners are set to have their forbearance expire in October. As their mortgage expires, they will have some big choices that they need to immediately make. They must decide if they will be able to resume mortgage payments, modify their loans, or sell their houses and take advantage of sky high home prices.
If homeowners are in a position to resume making payments or need to modify their loans, they will need a forbearance exit plan, which must be approved by their lender. For many, loan modifications will be a great way to meet the financial demands of today without risking foreclosure. Fortunately, the Consumer Financial Protection Bureau put a rule in place that makes it harder for lenders to initiate foreclosure. Instead, they have much more incentive to work with homeowners and accommodate loan modifications. Either way, homeowners will need to have some sort of plan to pay back any mortgage payments they missed while in forbearance.
Forbearance Exit Plans
In order to exit forbearance and avoid foreclosure, homeowners are required to have a plan to pay back any mortgage payments they have missed. These exit plans are formal agreements you make with your lender that detail what the manner and timeframe in which the missed payments will be paid back. All lenders are different and each one has a different preferred approach as to how exit plans should be structured. Fortunately, many lenders are allowing a lot of flexibility due to the pandemic. What is important to keep in mind is that these exit plans must be agreed upon before your mortgage is out of forbearance. Failure to have an exit plan in place could result in your lender initiating foreclosure procedures. Once that happens, it is much more difficult for you to get back on track with your mortgage.
Forbearance Plans for Federal Government Home Loans
Being a homeowner is life-changing. It gives you a place to put down roots and gives you an ability to build wealth for future generations. Because of this, the federal government has created many programs to help Americans become homeowners. For example, there are FHA loans for first-time home buyers or VA loans for members of the armed services. These mortgage programs are attractive for many home buyers because they often lower the barriers that prevent people from becoming homeowners. They often allow home buyers with less than perfect credit to purchase a home or they reduce what is necessary for a down payment. As a result, millions of Americans purchased homes using one of these government mortgage programs. Homeowners who have any of these government mortgages need to be aware of what types of forbearance exit plans that are available for these loan programs.
Each type of government home loan has different provisions that shape what a forbearance exit plan can look like for homeowners. For instance, VA loans are not allowed to require lump sum payments from homeowners upon exiting forbearance. The same is also true of homeowners who have USDA loans. To figure out which types of forbearance exit plans are available to you, consult the Consumer Financial Protection Bureau website.
Forbearance Exit Plans for Government Backed Loans
Many homeowners have loans that are backed by the federal government, but are not directly through the federal government. That is the case with anyone who has a home loan through Freddie Mac or Fannie Mae. Homeowners with loans through either Freddie Mac or Fannie Mae will have a lot of options when it comes to forbearance exit plans. They are currently offering repayment plans, which will allow homeowners to pay missed mortgage payments back over a set period of time. For some homeowners, they are allowing deferral plans, which means that you can pay back any amount owed at the end of your mortgage. Some homeowners can even qualify for loan modifications, which changes the terms of the home loan to be more favorable. You will need to speak directly with your lender to see which options are available to you.
Final Thoughts
Each month the number of homeowners who have their mortgages in forbearance is declining. Unfortunately, there are still 1.6 million who are dealing with that reality. As these forbearance agreements are set to expire, homeowners will need a plan to pay back any mortgage payments they have missed while in forbearance. These forbearance exit plans must be made with the lenders and cannot be decided independently by the homeowners. Fortunately, lenders are offering a variety of forbearance exit plans to help homeowners no matter what situation they find themselves in. It is important to figure out which types of plans are available through your lender and be proactive with trying to get them in place. Failure to put your exit plan in place can potentially put you on the road to foreclosure, which is tragic considering forbearance is designed to prevent foreclosure in the first place.
